Source:The Australia Financial Review
Reporter: Shannon Nicholls
The financial crisis has caused valuations on property fund management business to drop to low single digits versus price-earnings multiples of up to 30 times during the height of the boom.
“At its absolute peak, property fund managers were trading on 30-odd times P/Es, on high revenue, but this was not sustainable; AIMS Financial Group director Mark Thorpe-Apps said. They are now trading on tiny multiples – single digits without a doubt.
Sydney-based AIMS is close to wrapping up a takeover offer for ailing property fund manager MacarthurCook, which controls about $1.2 billion of real estate in Australia and Asia.
The offer price represents about 2 percent of MacarthurCooks funds under managerment; a far cry from some prices paid during the boom.
When Becton Property Group picked up Lachlan Property Group in December 2007, it paid $42.4 million or about 9.42 per cent of assets under management.
In May, South African property giant Growthpoint Properties paid Orchard Funds Ltd $6million for the responsible entity of Orchard Industrial Property Fund.
The industrial fund has a $750 million portfolio.
The managing director of boutique group 360 Capital, Tony Pitt, said the price for the trust management in the Orchard deal represented about 1 to 2 per cent of funds under management. But he noted that some fund managers were actually losing money, making valuations difficult.
The market is essentially putting a zero against valuations at the moment. Most of them don't actually have earnings for a P/E ratio,he said.
A Deloitte report on the Orchard deal said the prices paid to acquire the property funds management and responsible entity rights in recent deals averaged 4.1 per cent of the gross assets under management.
The sample included Allco Finance Group's controversial related-party purchase of the Rubicon Group from former executive chairman David Coe and non-executive director Gordon Fell.
It also included Lend Lease’s acquisition of the management of Babcock & Brown Communities Group.
Despite the plunge in the value of property funds management businesses, some players hope to emerge from the downturn in better shape.
Now there will be demand for transparent, clean funds. Investor can understand simple structures verse being too confused and hence too concerned,” Mr Thorpe-Apps said.
He concerned that the boom time property funds management model was “broken and unloved”. But he is now more optimistic as buyers emerge for property funds managers, albeit at low prices.
We started to see some signs of confidence return to the market, so we decided to start looking more actively.
Goldman Sachs analyst Simon Wheatley sees a future for the funds management models so long as there are not too many non-traditional real estate earnings streams.